Preston’s December 7 city council meeting centered on the presentation of the annual city budget and proposed tax levy; this hearing is required by the state and allows for public comment. However, the actual proposed levy ended up being of less concern than the significant residential valuation increases. Residential property taxes will be up significantly next year (a 15 to 20% increase for many).
The city’s proposed levy increase is 4.24%, or a $41,812 increase. The proposed 2021 levy is $1,026,942. City Administrator Joe Hoffman reviewed proposed expenditures and expected revenues. Much of the increase in the budget/levy is to pay for the planned 2021 Street and Utility Project. Fifty percent of the city’s revenue comes from the tax levy. About 24% comes from state aid.
Hoffman noted that Local Government Aid has only increased 1% since 2004, or a total of $5,000 over 17 years. Obviously, inflation has caused expenses to increase at a much faster rate causing necessary increases in the levy.
Bond payments will be about $250,000 or about 11% of the budget.
Hoffman explained how property taxes are determined: total proposed local budget minus all non-property tax revenue (including state aid and fees) equals property tax revenue needed (levy). The assessor’s market value times the state mandated class rates equals the total tax capacity. Then, the property tax revenue needed (levy) divided by the total tax capacity equals the property tax rate. Preston’s tax rate is 114%. This rate varies between cities in part due to the amount of capital expenditures made in each of the various cities.
Hoffman compared property taxes on a similar size and age home in a number of nearby cities. Preston’s total property tax for a similar home is lower than Rushford and Rochester and lower yet than Spring Valley and Chatfield.
Hoffman referred to the news that the state’s short term budget picture has improved significantly. He said state aid is important to us. This news reduces the risk that there could be cuts to state aid. The final 2021 budget/levy will be considered at the December 21 city council meeting.
Residential valuation increases
County Assessor Jason McCaslin was asked to comment during the meeting to give an overview of the assessment process and the increase in residential valuations. Councilman Robert Maust said he has heard from a lot of upset people due to the steep increases in residential property valuations.
McCaslin maintained that all information used is taken directly from sales activity. The sales ratio is the estimated market value of a property divided by the sales price. The median sales ratio (the middle of the sample) is required by the Minnesota Department of Revenue (DOR) to be maintained between 90% and 105%. McCaslin said he likes to see this ratio around 94 to 96%, which means every property owner is paying their fair share of the tax burden, “no more, no less.”
McCaslin explained that when the county submits spring assessment data, the state board checks to see if the valuations of all jurisdictions are in the compliant range. When a jurisdiction is found to be out of compliance (in this case the residential properties in Preston were undervalued), the state orders a valuation increase which results in a shift of the tax burden in that jurisdiction.
The State Board of Equalization meets in June after valuation notices are sent out and prior to assessments being finalized. For the 2020 assessment, “the Median Ratio for the City of Preston fell short of compliance at 85.12%.” The state ordered a 5% increase in values for buildings and a 10% increase in values for land on all residential properties in the city/jurisdiction.
The total property tax burden for the city overall was not raised, but valuations were adjusted, causing residential property owners to carry their fair share of the tax burden.
Mayor Kurt Reicks asked if there is a limit as to how much valuations can be raised in a single year. McCaslin responded that valuations have to be compliant. Compliance is important as it assures that the tax liability is spread equally throughout the county. This does not increase tax revenue, only spreads the tax burden more fairly.
Reicks asked how many sales were in last year’s study. McCaslin said there were 24 sales. Hoffman said the city’s 4.24% increase in the levy is a small portion of the residential property tax increases in Preston. For example, if a property owner is seeing a $682 increase, only $112 of that is due to an increase in city spending. This meeting was virtual and residents could call in, but there were no comments from residents. Hoffman added that no one likes to see a 20% increase in their property taxes; it is unfortunate that the correction was made all in one year.
McCaslin didn’t rule out a lesser increase for next year; with the valuation increases this year the median sales ratio is at 90.4%, which is barely within compliance. He suggested it is better to maintain a ratio of at least 94%.
Other business in brief
•Gabby Kinneberg was hired as the joint EDA/Tourism director. The new position is full-time with full benefits. Kinneberg has worked for the city for 3.5 years. Reicks said she has been a real asset to the city. Outgoing EDA Director Cathy Enerson has been with the city for 13 years and will work with Kinneberg during a short transition period.
•The EDA recommended approval of a revolving loan for Austin Baukol (BL Designs LLC/Baukol’s Barrels LLC) to aid in the purchase and installation of a laser engraving machine. The proposed EDA loan is $5,000, to be paid back over five years at 2.5% interest. The total cost of the project is about $15,000 of which there is to be a $5,000 bank loan and the other $5,000 from owner/other investors. The council approved the $5,000 EDA loan, of which $1,500 will be the last of Preston’s federal MIF funds (deferred loan/grant). After five years, if still in business, the $1,500 will be forgiven. With the new laser engraving machine one new job will be created.
•Dwight Luhmann, Luhmann Law, was approved as the city attorney for 2021. The annual retainer is unchanged from 2019 at $19,440.
•The Fillmore County Journal was approved as the official newspaper for 2021.
•Smith Schafer & Associates, LTD was approved as the auditor for 2020 and 2021. The fee for 2020 is $18,000 (a 2.8% increase over 2019) and for 2021 is $18,525.
Leave a Reply